Solicitor legal advice on employment restrictive covenants.

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Employment contract restrictive covenants

 Our experience and legal services range from drafting employment restrictive covenants through to assisting where there is a dispute, whether from the employer or employee perspective. Do get in touch to find out more about us and how we can help you. 

Restrictive covenant advice for employers

How to protect your interests as an employer with employment restrictive covenants?

• draft employment contracts with appropriate non-competition and non-solicitation clauses and possibly a gardening leave clause.

• act quickly and decisively if an ex-employee is in clear breach including threatening and possibly applying for an injunction or breach of contract damages claim

Why are restrictive covenants important?

The inclusion and extent of restrictive covenants is an important consideration for inclusion in employment contracts and business sale agreements, particularly for senior employees or those who have intimate knowledge and contacts of a business in terms of confidential business information and sales.

As an employer, ask yourself a simple question – will the individual possibly be in a position to damage your business success when they leave? If the answer is yes, deal with the problem when they join, not when they leave.

The key considerations for an employer to avoid any restrictive covenants proving unenforceable (see further below) are the reasonableness of the restrictions and the extent to which the employer can justify them.
See here for more on non-compete clauses and a recent case example.

Types of post employment restrictions

There are many different types of restrictive covenant, but the ones most commonly used, generally known as non-compete and non-solicitation covenants, are:

• Restrictions on working for competitors in the same industry for a defined period and within a defined geographical area.

• Restrictions on approaching or seeking business from existing clients of your business.

• Restrictions on an employee dealing with your clients even if they approach him or her.

• Covenants preventing your employee from recruiting (poaching) other employees from your business.

Restraint of trade or right to protect legitimate business interests?

As with contract law generally, it is up to the parties to agree terms between them, but English law generally considers that with employment contracts there is unequal bargaining power, and the courts are therefore prepared to interfere with employment contracts by varying, reinterpreting or refusing to uphold certain clauses such as restrictive covenants, balancing the legitimate rights of the employer to protect it’s business as against the fact that many restrictions can be a restraint of trade.

The risks for employers of overdoing it with restrictions cannot be over emphasised. If clauses are too widely drafted they may be found to be unenforceable in whole or in part. The employer should consider at the stage of drafting the level of legitimate risk to his or her business, adopting a proportionate and justifiable approach and be seen to explain this to the employee at the stage of drafting.

Covenants may also need to be reconsidered or renegotiated as employees become more senior. The best way to protect the employer in the case of any dispute later will be to have a paper trail showing the employer’s reasoning and that the employee was not coaxed into agreeing a very onerous clause. It is also generally important to break restrictions down into different clauses and to have a specific clause stating that the parties agree that the covenants are divisible so that if one aspect is found to be too wide and is unenforceable, other aspects may still be upheld.

If you need solicitor advice on employment restrictive covenants, please do get in contact, either as employer or employee.

Is your employment restrictive covenant enforceable?

Not all restrictive covenants will be enforceable. If they are drafted too widely (for example seeking to restrict an employee from working for a competitor within a wide area and for over 5 years would generally be considered a restraint of trade) your employee may challenge them.

As a general guide, you should be wary of seeking to restrict activities for more than 6 months and with a geographical extent which is wider than perhaps 5 to 10 miles at most. When finding that a covenant is unfair on an employee, a court can deem that covenant totally unenforceable or water it down.

Practical tips on dealing with employment restriction disputes

In addition to getting good legal advice as to whether the clauses in your employment contract, if any, are likely to be enforceable, it is also vital to gather compelling evidence urgently.

Solicitors can also help. The next step would then generally be to prepare a detailed letter to the former employee setting out the allegations and demanding :-

• a formal undertaking from the employee to desist from the activities.

• the return of any materials, such as client lists, data or other know how which is being used and clear information as to whether any copies have been made and disseminated.

• possibly for the ex-employee to pay legal costs you have incurred.

The letter would also generally include sufficient details and evidence of the breach and make clear that in the event of non-compliance with demands, you will apply for an injunction.

Breach of contract by the employee?

When considering suing for breach of contract with any contract, it is important to bear strongly in mind what the objective is – in most commercial contexts it is to recover losses.

On that basis, it follows that there is no point, commercially, in suing if the defendant definitely doesn’t have resources to pay or is unlikely to have the resources. This is perhaps one reason why employers rarely pursue employees.

Damage caused by an employee breach, of the types described above, could cost a business many thousands if not more.

However, in some cases, aside form the strict commercialities of the situation, principle may also come into play and also setting a precedent. If other employees know that you may pursue them, they may be more careful about their conduct.

As against this, employees may not be so keen to work for an employer that adopts such an approach and staff morale is also a big factor.

Get in touch, whether employer or employee, if you need a solicitor for a post employment restriction dispute.